TFSA’s are a great way to save for both long and short term.
The Tax Free Savings Account is a hybrid between your RRSP and regular savings accounts. That is because the money you put in to your TFSA has already been taxed, you do not get a tax refund when you put the money in, any growth does not get taxed and when you take money out, you do not pay any tax. The trade off is an RRSP gives you tax back now, grows tax sheltered and you pay the tax when you take the money out. If you can do without the tax break now, you will not pay tax in the future.
Contributors tend to make common mistakes with TFSA’s. One is using the account to save for a child’s education. The registered education savings plan (RESP) is intended for this purpose – and has the added bonus of matching contributions by the government.
Another common mistake is simply leaving contributions in a low-return savings account, rather than using investments that are likely to yield higher returns. However, investing directly in stocks in a relatively small-value account like most TFSA’s can lead to challenges when it comes to diversification. Mutual funds can often be a good solution to this problem.
And while most individual investors may be able to choose an appropriate mutual fund on their own, a financial advisor will help ensure the funds meet your goals and time frame.
Contact Debbie at www.mcwealthmanagement.ca or Debbie@mcwealthmanagement.ca.